Is Intuitive Surgical a Buy Right Now?

Intuitive Surgical (NASDAQ: ISRG) has faced significant challenges over the past year, especially related to tariffs. The company's shares have lagged broader equities as a result, and with the trade war still not over, the medical device specialist's near-term prospects look dim. However, Intuitive Surgical does have qualities that could help it overcome its challenges and perform well over the long run. Is the stock worth buying right now? Let's consider both sides of the argument in a little more detail.

Valuation could be another issue

Intuitive Surgical's financial results still look pretty good. In the fourth quarter, the company's revenue increased by 19% year over year to $2.87 billion, while its adjusted earnings per share climbed 14.5% to $2.53. All that on the back of a 17% increase in procedures performed with its crown jewel, the da Vinci surgical system, whose installed base during the period also jumped by 12% year over year to 11,106.

Here's the problem. The impact of tariffs on Intuitive Surgical's financial results could get worse over time. Meanwhile, the company is facing increased competition from other medical device makers in the robotic-assisted surgery (RAS) market, as Medtronic recently received clearance for its Hugo system, and Johnson & Johnson could also launch its own system relatively soon.

Amid all that, Intuitive Surgical is still trading at 47.6 times forward earnings, compared to the average forward price-to-earnings of 17.1 for healthcare stocks. Intuitive Surgical arguably deserved a premium so long as it had little competition and tariffs did not significantly impact its results. Now that things have changed, many investors wonder whether the stock is worth it at current levels, or if, given its valuation, Intuitive Surgical's stock could fall even further.

Some reasons for optimism

The RAS market should expand over the next decade, as it is currently underpenetrated, even as robot-assisted devices enable minimally invasive surgeries with significant advantages over open surgeries. The former are performed with small instruments that avoid cutting the skin open to have direct access to internal organs. The results are often less bleeding, less scarring, and faster patient recoveries. Even with increased competition, Intuitive Surgical has built a wide moat from multiple sources, including switching costs -- its devices are deeply entrenched in the healthcare system in the U.S. and are even used to train surgeons -- and a massive amount of real-world data that shows the efficacy of its da Vinci system.

With an expanding market and a strong competitive edge, Intuitive Surgical is well-positioned to ride the wave of the RAS market. Several other factors could improve its financial results over the next 10 years or so. First, Intuitive Surgical should earn more indications for its da Vinci system, as it has historically done. This will help boost procedure volume. And second, as procedure volume grows, so does the company's revenue from instruments and accessories. Since these are replaced regularly, they provide a consistent source of revenue for Intuitive Surgical.

Instruments and accessories also likely carry higher margins than device sales, so the company's margins could improve, too. But how will Intuitive Surgical deal with tariffs? With a projected roughly 1.2% negative impact on net revenue this year, the company could eventually make it up by slightly increasing prices. Even modest price hikes distributed across thousands of customers could more than offset the impact of tariffs on the company's top-line. And Intuitive Surgical can afford that, given its market-leading technology and demonstrated patient outcomes, which give it some degree of pricing power.

In my view, tariffs aren't a death blow to the company's prospects, even assuming they stay beyond the current administration, which isn't a guarantee. So, is Intuitive Surgical worth investing in right now? My view is that although the stock could remain volatile over the next year or two, it remains an excellent pick for investors looking to hold onto it through the next decade.

Prosper Junior Bakiny has positions in Intuitive Surgical and Johnson & Johnson. The Motley Fool has positions in and recommends Intuitive Surgical. The Motley Fool recommends Johnson & Johnson and Medtronic and recommends the following options: long January 2028 $520 calls on Intuitive Surgical and short January 2028 $530 calls on Intuitive Surgical. The Motley Fool has a disclosure policy.